LawFlash

Potential Impact of ‘Brexit’ on Arbitration

Litigation LawFlash

May 26, 2016

This material was prepared prior to the UK vote on 23 June 2016.

As we stand only weeks away from the United Kingdom’s referendum on a potential cleaving from the European Union, economists and politicians are busy analyzing the potential effects of either decision; there are also potential ramifications for the legal world.

Arbitration in the UK

Arbitrations seated in London are governed by the English Arbitration Act 1996 (the Act), and enforcement of arbitration awards is made possible by the New York Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the Convention), of which the UK is a party. Ostensibly, arbitration will carry on as usual, as neither the Act nor the Convention are EU law. In the UK, arbitration is an effective alternative to litigation for dispute resolution and avoids the uncertainty around future EU service rules.

The Potential Impact of Brexit

The UK would likely remain a preferred dispute resolution centre in the event of a Brexit, linked to its status as a global financial hub. It is doubtful that a Brexit will have an impact on choice of English governing law for arbitrations, given the jurisdiction’s reputation for fairness, impartiality, and clearly reasoned decisions from experienced arbitrators. In the Queen Mary International Arbitration Survey for 2010, English law was the most common choice of governing law for the substance of arbitrations, followed by New York state law. English law was also a factor placing London as the “preferred seat” along with factors such as location, language, culture, and efficiency of court proceedings. It is a common law jurisdiction, and as such, has a large body of caselaw. This has not been derived from EU law and will continue to work independently of it. Further, it has even been argued that a Brexit could position English law as more attractive, as it could sidestep unpopular aspects of EU law, such as the suggested Common European Sales Law.

The more recent Queen Mary International Arbitration Survey for 2015 found that the five most preferred and widely used seats for arbitration are London, Paris, Hong Kong, Singapore, and Geneva (in that order). This is primarily driven by recognition and reputation; qualities that are not easily shaken. The other key factors relate to the seat’s “formal legal infrastructure”:

The neutrality and impartiality of the legal system

The national arbitration law

The track record for enforcing agreements to arbitrate and arbitral awards

Although unlikely that these characteristics would change due to a Brexit, it would be interesting to see whether Paris increases in popularity, in relation to London, due to its retained membership of the European Union. Singapore and Hong Kong were also voted most improved arbitral seats, which highlights the competitive landscape.

The International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) are the top two favourite arbitral institutions, based on the quality of their administration and their level of “internationalism” and global presence, among other factors. The two institutions have maintained this leadership position for over a decade. This is closely followed by two Asian institutions—the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC)—both also voted “most improved” and gathering momentum.

Conclusion

There is a large amount of uncertainty as to the probability and impact of a Brexit. It will remain to be seen whether companies decide to bolster their contracts with dispute resolution clauses that opt for arbitrations seated in London in order to avoid any potential complications.

Resources

For more than three decades, Morgan Lewis has represented companies and institutions doing business in the United Kingdom and globally. Our Brexit team of lawyers have been advising clients on a variety of legal issues in the run up to the decision and are assessing the complex short- and long-term implications of the June 23 vote. Our Brexit Resource Centre will continue to provide guidance on the legal and business implications of the United Kingdom’s decision to leave the union. To view this alert and others, and to gain immediate access to our most recent guidance on Brexit, please visit the Brexit Resource Centre. In addition, please feel free to speak to your usual contact at Morgan Lewis or to contact any one of the Brexit Team via Brexit@morganlewis.com.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: